Determine Certainty Program Framework of a Market Based Conservation
Initiative for Longleaf Pine Habitat Improvements in Eastern North Carolina
Longleaf Pine Credit Supply Final Report
Component Report 3 of 6
Damien Singh1, Fred Cubbage1, Nils Peterson1, Michelle Lovejoy2, Jessica Pope1,
Suzanne Jervis1, Chris Serenari3, Viola Glenn1, Amanda Dube4
1North
2North
Carolina State University
Carolina Foundation for Soil and Water Conservation
3North Carolina Wildlife Commission
4Texas A&M University
15 January 2016
Version #17
This material is based upon work supported by the Natural Resources Conservation
Service, U.S. Department of Agriculture, under number 69-3A75-13-229. Any opinions,
findings, conclusions, or recommendations expressed in this publication are those of the
author(s) and do not necessarily reflect the views of the U.S. Department of Agriculture.
1
Table of Contents
page
Executive Summary
3
Introduction
4
Brief Literature Review
6
Landowner Interest in Longleaf Conservation Programs
7
Landowner Survey Methods
Statistical Analysis
Regression Analysis
Choice-Based-Conjoint Analysis
Landowner Survey Results
Descriptive Statistics
Regression Analysis
Choice-Based-Conjoint Analysis
8
10
10
11
12
12
13
15
Financial Analysis and Capital Budgeting for Alternative Investments
16
Management Assumptions, 2011
Capital Budgeting Methods
Financial Results, 2011
Sensitivity Analysis: Changes in Stumpage Prices
and Cost Share Payments, 2011
Management Costs and Present Values for RCW Habitat, 2015
Practices Required for Longleaf Pine Conversion
or Existing Stand Management
Discounted Cash Flow Value of Costs
Required Incentive Payments
Increasing Existing Longleaf Pine Habitat
17
19
20
23
25
25
27
28
31
Discussion and Conclusions
32
Literature Cited and References
35
Appendix 1. Management Activity Descriptions and Associated Costs
for Low and High Intensity Management Regimes, 2015
39
2
Executive Summary
This component of our Conservation Innovation Grant analyzed the potential supply of
Longleaf pine habitat in Southeast North Carolina for an ecosystem based credit market
using landowner surveys and economic analyses of rural land management alternatives.
Results from a logistic regression and a choice-based-conjoint (CBC) statistical analyses
revealed that landowners were most influenced by program requirements such as contract
length and legal obligation in a conservation contact. Short term contract agreements of 5
to 10 years were favored, as were the least land restrictions. Annual payments were
somewhat less important than contract agreement or level of obligation, although higher
payments were more desirable, as expected. The initial cost share rate and level of
technical assistance were the least important factors affecting willingness to participate in
Longleaf conservation programs. The presence of Longleaf pine on the landowner’s
property, previous participation in a FSA benefits program, a willingness to participate in
a permanent easement to promote Longleaf pine, the amount required amount to accept a
permanent easement, and ownership of 101 – 500 acres of forest positively impacted
landowners’ interest in a conservation credit program to promote Longleaf pine habitat.
Conversely, persons who were unwilling to participate in a permanent easement were less
interested.
The financial and capital budgeting analysis indicated that for Longleaf pine versus
Loblolly pine, the incentive payment required for landowners to plant Longleaf in the low
intensity 2011 analysis at a 4% discount rate, was between $7 per acre and $83 per acre
per year, not including establishment costs. If establishment costs of $306 were paid,
Longleaf returns would exceed Loblolly returns for the higher site indexes and pine straw
raking scenarios. Greater costs in our more intensive 2015 management scenarios
resulted in annual incentive payment requirements of $66 to $496 per acre per year for
Longleaf to break even and meet the 4% discount rate when converting agricultural land,
which are prohibitive at the high end. However, if the initial year costs for mature forest
conversion of Longleaf pine tree planting received a 50% cost share rate, required annual
payment costs could decrease substantially. Also, if the very expensive $2000 to $2500
per acre shrub establishment practice were dropped, even the intensive Longleaf annual
payment rates for mature and planted stands could decrease to less than $100 per acre per
year, which is still within current Farm Bill program payment levels. Conversion of good
quality agricultural crop land to Longleaf pine would be too expensive based on high
2011 crop prices, but for poor croplands and at current lower 2015 prices, conversion
could be economically attractive, especially with prevailing cost share payments.
3
Introduction
This USDA Conservation Innovation Grant (CIG) project is designed to examine
“Market Based Conservation Initiative for Longleaf Pine Habitat Improvements in
Eastern North Carolina.” This section of the report is a summary of that project with the
component of assessing the possible supply of Longleaf pine forests that landowners
could provide for Longleaf ecosystem habitat under various conservation market
incentives. To draw from the proposals, this report examines two principal questions: (1)
assess landowner willingness to supply habitat/species conservation; and (2) analyze the
economics of alternative forest investments and the economic returns and opportunity
costs for conservation management.
The supply component of the project built on our prior research on conservation
programs to identify key components of a successful program. This work was continued
with further surveys of landowners in the key counties to assess their willingness to plant
Longleaf pine, work with nontraditional partners seeking habitat credits, interact with
farm and forestry support agencies, gauge their knowledge of Endangered Species Act
issues, and determine cost-share payment rates that might be required to foster credit
creation. A map of the counties is shown below. We used one large survey and two
statistical methods to examine the interest of landowners in participating in various
conservation programs to create, enhance, or restore Longleaf pine ecosystems—a choice
based conjoint (CBC) analysis and a regression analysis—as described below.
The economics of returns to setting aside lands for Longleaf pine conservation, or
converting other lands to Longleaf, were also estimated in prior research, and updated in
this component of the project. In order to increase Longleaf pine habitat, the credit
buyers will need to make adequate incentive payments to make supplying credits as
attractive when compared to other potential income from higher valued land uses.
Economic analyses of Longleaf pine versus alternative land uses were made to estimate
the “delta” required—the difference between economic value of current land uses and
prospective land uses. This would provide the amount that would be needed to be paid for
conservation payments required to increase the Longleaf pine ecosystem as compared to
Loblolly pine or agriculture land uses.
Conservation markets need a supply of a product or service—landowners who will
supply the service—and demand from some entity to buy the conservation good or
4
service. In the case of conservation credit markets, private landowners may enter into
temporary contracts or permanent easements directly with buyers or with brokers to
create and ultimately supply credits to individuals, businesses or government entities
seeking an investment opportunity, positive public relations coverage and/or to offset
damages to the environment. Such agreements can vary in their provisions; however, they
generally place stringent land management and legal requirements on the participant in
return for financial compensation, regulatory assurances, and program assistance.
Private lands are crucial for ecosystem services and habitat conservation. In the United
States, 914.5 million acres of land were classified as farmland (40% of the total area), and
there were 2.1 million farms (USDA NASS 2014). In the lower 48 states, about 70% of
the total land area is in private ownership, and about half of all the land is managed as
cropland, pastureland, and rangeland by private landowners (Heard et al. 2000, cited in
Gray and Teels 2006). Approximately 65% of all land in the United States is owned
privately.
For the 766 million acres of forest land in all states, the public sector owns a greater share
at 321 million ha (42%). There are 445 million acres of private forest land, or 58%, with
about 10 million forest land owners. Private noncorporate owners hold 39% (298 million
acres) of the nation’s forest land and private corporate owners hold 19% (147 million
acres). In the South, private non-corporate and family forest owners hold 60% of the
forest land, and private corporate owners hold 27% (Oswalt et al. 2014).
Public assistance for natural resource conservation by individuals on private lands is an
objective of government and nongovernment organizations, ranging from international, to
national, to state, to local scales. There are literally thousands of financial and technical
assistance programs and cooperative programs that provide economic incentives for
sustainable use, conservation, and protection of natural resources, including land, water,
fish and wildlife, forests, rangelands, and croplands.
Various conservation programs provide payments to encourage private landowners to
perform conservation practices on their land. The structure of the payments required,
contract of easement terms, and technical assistance required influence the enrollment in
and success of the programs. Longleaf pine has become an important conservation
priority in the South in last decade or so, and we examined the economics and program
characteristics that would encourage private landowners to plant or restore more Longleaf.
5
Approximately 4.7 million acres of Longleaf pine (LLP) exist in the Southeast region, of
which 61% are on private lands (ALRI 2014). Given these conditions, successfully
promoting LLP habitat through the implementation of a credit market hinges on its
widespread adoption by private, non-industrial landowners. LLP is most noted for its
ability to provide habitat for the endangered red cockaded woodpeckers (RCW), but has
many other broad biodiversity and ecosystem functions and values that would make it
attractive as a credit market opportunity.
This section of the report is divided into three parts. First, we review current literature on
landowner interest in conservation in southeastern U.S. Second, we analyze a survey
conducted of landowners in 38 eastern North Carolina counties to examine how they
prioritize provisions of a theoretical performance contract and the variables associated
with interest in Longleaf pine (LLP) conservation. Finally, we evaluate three traditional
income generating activities (LLP for timber, Loblolly for timber, and agriculture
production) to better understand the level of compensation needed to attract market
participants.
Brief Literature Review
Considerable research has examined landowner views and interest in conservation in the
Southeast U.S. in North Carolina. Rodriquez et al. (2012) found landowners prefer
contracts to permanent easements and while many were interested in protecting
endangered species, it was the lowest priority among conservation issues. They also
found interest in conservation was negatively correlated with age and positively
correlated with past participation in conservation programs, positive perceptions of
endangered species protection, and lower property requirement scores. Golden et al.
(2012) studied North Carolina landowners and found that they are more likely to be
interested in wildlife conservation if they resided on their property, hunt and/or have a
family member that hunts and were younger and male.
Although the terms of conservation performance contracts may vary, they usually contain
several common attributes including, but not limited to: length; legal obligation to
maintain land during and after contract; financial assistance to help with establishment
costs; incentive payments to compensate for potential loss in income; and level of
program assistance received prior to and during the contract period. Some research has
used novel approaches to shed light on how landowners prioritize such conditions. For
6
instance, Sorice et al. (2013) studied family-forest landowners in southeast U.S., using a
choice model to determine preferences for participation in a program to protect the
gopher tortoise. They found a strong aversion to strict regulatory programs, or ones that
require permanent easements, or put landowners at risk of future regulation.
In general, conservation programs may provide contracts, which are temporary legal
agreements between the program’s managing agency and a landowner, and easements,
which are permanent changes in the rights to use the land. Conservation contracts
usually provide a specific cost-share payment for establishing a conservation practice,
and usually have annual payments for maintaining those practices. The cost-share
payment covers a portion of the costs that landowners incur when performing a practice,
ranging from 50% to 100% depending on the needs, the practice, the state, and the type
of landowner. The annual payments may occur for a decade or more for conservation
contracts, where the landowner agrees to keep a practice in place for the duration of the
contract. Landowners also may enter into a long term or permanent easement—which is
a specific legal instrument that mandates they perform a practice or restricts their land use
rights, and is registered on the title to their land. This may include some establishment
costs, and then a fixed payment for the easement rights, usually as a lump-sum up-front
payment (Cubbage et al. 2016).
Easement agreements are more expensive than conservation contracts, and less common,
but still prevalent. Most landowners are apt to prefer short-term easements with
payments for a fixed term, so they can break a contract if need be, or simply wait until it
expires before changing the conservation practice or land use. However, landowners who
truly want to protect and conserve their land use in perpetuity, and receive a greater
payment for themselves, not their heirs, may prefer to sell their land with a permanent
conservation easement, or just sell the conservation easement and retain the land
(Cubbage et al. 2016).
Landowner Interest in Longleaf Conservation Programs
Per the objectives of this Conservation Innovation Grant, we used two broad methods to
gauge the interest of landowners in establishing Longleaf pine conservation programs.
First, we performed a survey of landowners to estimate their interest and the factors that
influenced that interest. Second, we calculated the economic returns to growing Longleaf
pine versus Loblolly pine or agriculture crops. These efforts are described below.
7
Landowner Survey Methods
We conducted a survey of landowners in 38 counties in eastern North Carolina that fell
within the historical Longleaf pine range as identified by the Longleaf Alliance strategic
plan (Figure 1).
Figure 1. Map of Conservation Innovation Grant Longleaf Pine Project Area
Working with various forest and agriculture associations and cooperative extension
agents, we developed a sampling list and frame composed of (1) individuals for whom
the research team has secured personal email addresses, and (2) organizations who would
rather not share internal information, but agreed to send our emails with links to the
survey directly to landowners on our behalf. Many drafts of the survey were developed,
reviewed by the project personnel, presented for discussion at CIG stakeholder meetings,
and revised for the final survey instrument. The surveys were reviewed by the NC State
University Institutional Review Board and approved before sending them out.
8
Data were collected from respondents through a pre-tested questionnaire constructed and
administered on an online server hosted and maintained by North Carolina State
University. Approximately 1,000 survey requests we sent electronically and another
2,000 via regular postal service mail. These requests asked landowners to go to the web
site to complete the survey, since part of the survey specifically required web replies.
Our sample included 374 landowners (only 243 completed the entire survey) who owned
forest, agriculture land or a combination thereof with acres ranging from less than 50
acres to more than 5,000 acres.
The survey consisted of two parts. First, it asked one open ended question (age) and 25
multiple choice questions related to respondents’ demographics, land characteristics,
interest in conservation programs and easements, having management plans, participation
in the North Carolina deferred tax program based on agriculture, forestry or wildlife
usage (present use value (PUV)), and using Natural Resource Conservation Service
(NRCS) and Farm Service Agency (FSA) benefits/cost-share programs. We also included
a question on their willingness to participate (WTP) and the amount required to
participate (willing to accept: WTA) in making a permanent conservation easement.
Table 1 summarizes the independent variables measured from the survey.
Table 1. Independent Variables Measured
Variable
Options
LL Cons Interest
Yes, No, I don't know
Currently has LLP
Yes, No, I don't know
Present Use Value Registered
Yes, No, I don't know
Receives FSA Benefits
Yes, No, I don't know
Receives NRCS Benefits
Yes, No, I don't know
Agriculture Management Plan
Yes, No, I don't know
Forest Management Plan
Yes, No, I don't know
Conservation Program for Ag Land Yes, No, I don't know
Forest Management Plan, Who
NC Forest Service, NC Wildlife Resources Comm, Consultant, Yourself,
Helped
Other
Age
Years
Sex
Male, Female
Education
High School, Tech, Associates, Bachelors, Graduate
Acres Forest Owned
1-49, 50-100, 101-500, 501-999, 1,000-4,999, 5,000+
Acres Ag Owned
1-49, 50-100, 101-500, 501-999, 1,000-4,999, 5,000+
Income
<$24,999, $25-$49,999, $50-$74,999, $75-$99,999, $100,000+
WTP Perm Easement
Yes, No, Depends on Payments/Property Requirements, Not Sure
WTA Perm Easement
$500, $1,000, $2,000, $2,500, Other (please specify)
9
Statistical Analysis
We analyzed the data using regression analysis and conjoint-based choice analysis.
Using these two methods provided a means to triangulate on landowner interest and
opinions using two approaches, providing more robust results.
Regression Analysis.—We analyzed the data from the survey using SAS JMP Pro
Version 12.0.1. First we developed a correlation matrix to examine the relationships of
variables measured and identified those with a correlation coefficient with the variable
Interest in a Longleaf Pine Conservation Program (LLPInterest) greater than 0.1. These
were organized into four conceptual categories based on landowner’s wealth, past
participation in a benefits program, interest in participating in a future credit program,
and land characteristics. We then ran separate Ordinary Least Squares (OLS) regressions
taking the variable Interest in a LLPInterest as a function of all the others and recorded
their parameter estimates and p-values.
Based on the OLS models and correlation matrices, we used the best selected variables in
a logistic regression model using SAS JMP procedure Nominal Logistic to estimate those
that had the most impact on LLPInterest—the likelihood that landowners would be
interested in planting or restoring Longleaf pine.
The regression model forms then were:
Ordinary Least Squares:
P = βo + β1X1 + β2X2 + … + β3Xn
Logistic Regression
P = βoX1β1X2β2… Xnβn
10
Where:
P = willingness to participate in a Longleaf pine conservation program
Xi = various land and landowner characteristics
Choice-Based-Conjoint Analysis.—The second part of the survey required respondents
to select an ecosystem credit program scenario among those presented in 12 choice tasks
(a choice task consisted of two different randomly generated scenarios and one ‘I don’t
know’). Table 2 shows the five attributes included in each scenario along with their
descriptions and possible levels. This portion of the survey, or the choice-based-conjoint
(CBC) analysis, was analyzed using Sawtooth Software version 8.2.0, Orem, UT. CBC
poses questions in a way that reflects how people make choices and enabled us to
examine landowners’ underlying values and preferences as they relate to environmental,
land use, and economic concerns.
Table 2. Attributes with Importance Scores and Descriptions
Attribute
Levels
Description
Contract Length 5, 10, 20, 30
Number of years required by contract
Landowner's legal obligation to maintain
Obligation
None, Baseline, Full
habitat
Annual Payment $25, $50, $75, $100
Payment per acre received by landowner
Cost Share
25%, 50%, 75%, 100%
Percent of $300/acre establishment cost
Assistance Level None, Prior Consult, Full Consult
Outside help to manage the land under contract
Most of the choice-based-conjoint analysis values are self explanatory, including contract
length, annual payment, cost share rate, and assistance level. Obligation covers how the
landowner is to manage their land once the contract ends. It has three values: none means
there are no restrictions; baseline would require continued management based on some
identified level of wildlife animal or plant species abundance; and full would have
landowner manage per contract terms until the endangered species is delisted. The cost
share percentage represents the possible program benefits to provide financial
compensation to establish the forest.
11
Landowner Survey Results
Descriptive Statistics.—Table 3 summarizes the descriptive statistics of the survey data.
Respondents averaged 62 years of age and were predominately male (82%) and retired
(42%) or employed full time off property (34%). Households with annual earnings of
$50,000 and $100,000 and greater than $100,000 made up 46% and 39% of the sample,
respectively. Some landowners resided outside of project area, but would have to owned
land or attended conservation programs that in the area in order to be included in our
survey.
Table 3. Descriptive Statistics for Survey Participants
Survey Participants
Completed (244) Started but did not complete (132)
Sex
Male (81.8%) Female (18.2%)
Full-time (33.6%) Part-time (3.1%) Unemployed (.4%) Disabled (1.3%)
Retired (42.4%) Self-employed (19.2)
<High School (.4%) High School/GED (12.8%) Vocational/Tech (10.7%)
Associates (14.5%) Bachelors (37.2%) Graduate/Professional (24.4%)
<$24,999 (4.6%) $25-49,999 (11.1%) $50-74,999 (23.6%) $75-99,999
(22.2%) $100,000+(38.4%)
Employment
Education
Household Earnings
Presence of LLP on Property
Yes (57.7%) No (28.3%) Not Sure (14%)
Forest Management Plan
Yes (67.9%) No (29.1%) Not Sure (3%)
Ag Conservation Plan
Yes (27.5%) No (60.4%) Not Sure (12.2%)
Present Use Value
Yes (68.1%) No (13.4%) Not Sure (18.5%)
FSA Benefits Program
Yes (52.1%) No (34.5%) Not Sure (13.4%)
NRCS Benefits Program
Yes (38.7%) No (50.4%) Not Sure (10.9)
B Bertie (.4%) Bladen (3%) Brunswick (1.7%) Carteret (1.7%) Cabarrus
(.9%) Caswell (.9%) Columbus (1.7%) Craven (.4%) Cumberland (10.3%)
Dare (.4%) Davidson (.4%) Duplin (2.6%) Halifax (.9%) Harnett (8.6%)
Hoke (2.6%) Gatson (.4%) Guilford (.9%) Johnston (6%) Jones (1.3%)
Lee (.4%) Lenoir (1.3%) Mecklenburg (1.3%) Montgomery (3.9%) Moore
(11.6%) New Hanover (.4%) Onslow (2.6%) Pender (3.9%) Pitt (1.7%)
Randolph (1.3%) Richmond (1.3%) Robeson (.4%) Sampson (6.5%)
Scotland (1.3%) Union (.4%) Wake (3.9%) Watauga (.4%) Wayne
(10.3%) Wilson (.9%)
County Participant Resides
A large share of respondents reported having Longleaf pine on their property (58%), a
forest management plan (68%), PUV (68%) and to a lesser extent a conservation plan for
their agricultural land (28%). Finally, 52% and 39% have participated in a FSA and
NRCS benefits program, respectively. These are high rates of Longleaf forests and farm
programs due to the fact that we obtained our survey samples from existing program
participants. This may provide some upward bias in the landowners’ willingness to
12
participate in Longleaf programs, but was unavoidable in order to get an adequate sample
at all.
Table 4 provides a breakdown of respondents by land ownership type. For instance, 80%
of landowners with 1-49 acres of forest also own 1-49 acres of agriculture land.
Similarly, 50% of landowners with 1-49 acres of agriculture land also own 1-49 acres of
forest. However, there are very few large forest landowners that own large amounts
agriculture land. But the large agriculture landowners tend to own large amounts of
forest as well. One might expect this since the state is 60% forested, and forests will
tend to rest in streamside zones, swamps, or hillsides on almost any farm in the state.
Table 4. Land Characteristics of Survey Participants
Forest Landowners by Acres with Agricultural Land
Acres of Ag
1-49
50-100 101-500
1-49
80%
33%
37%
50-100
15%
39%
30%
101-500
5%
26%
27%
501-999
2%
5%
1000-4999
2%
5000+
Forest Owners with Ag /
59/84
51/69
60/92
Total Forest Owners
Agriculture Landowners by Acres with Forests
Acres of Forest
1-49
50-100 101-500
1-49
50%
16%
6%
50-100
18%
36%
26%
101-500
23%
33%
32%
501-999
5%
9%
12%
1000-4999
4%
6%
20%
5000+
4%
Ag Owners with Forest
95/103
55/57
50/50
/Total Ag Owners
501-999
26%
26%
32%
11%
5%
1000-4999
19%
14%
48%
10%
10%
5000+
100%
19/23
21/29
2/2
501-999
1000-4999
5000+
13%
38%
25%
25%
25%
25%
50%
8/8
4/4
Total
210/299
(70.2%)
Total
212/222
(95.5%)
Regression Analysis.—Tables 5 and 6 provide information on the relationship of those
variables that affected interest in Longleaf pine conservation programs (LLPInterest).
The p-value measures the significance of the results, and generally those less than .05 are
considered strong, between .1 and .05 significant, and greater than .1 weak. Since pvalues can be very small, the statistical package provides a Logworth value which can
help more clearly interpret the significance and, if necessary, graph the results (P-values
13
and Logworths are inversely related). The Logworth estimator provides information
about the magnitude of the variable and how much it positively or negatively impacts the
dependent variable, in this case LLPInterest.
Table 5 shows that presence of Longleaf pine on the landowner’s property, previous
participation in a FSA benefits program (FSABenefits), a willingness to participate in a
permanent easement to promote Longleaf pine (a yes or no answer, depending on the
property requirements; variable WTP Depends on Property Requirements), the actual
required amount to accept a permanent easement ($2,500), and ownership of 101 – 500
acres of forest positively impacted landowners’ interest in a conservation credit program
to promote Longleaf pine habitat. Conversely, Table 6 shows that those less likely to be
interested included persons who were unwilling to participate in a permanent easement.
Table 5. Positive Significant Variables, LLPInterest
Variable
P-Value
LogWorth
Est.
CurrentLLP (Yes)
0.00459
2.338
0.5154
WTA ($2,500)
0.01828
1.738
0.4983
FSABenefits (Yes)
0.03864
1.413
0.3805
WTP (Depends Property Req.)
0.04367
1.36
0.4917
Acres Forest (101-500)
0.10482
0.98
0.3374
Table 6. Negative LLPInterest Correlation
Variable
P-Value
LogWorth
Est.
WTP (No)
0.00006
4.23
-0.8093
These all make intuitive sense—existing program and FSA participants were likely to be
interested in Longleaf programs as well, and higher payments for easements would
encourage more participation. Owners with medium sized forest tracts of 101 to 500
acres were the most likely to be interested; small and large forest owners were not.
However, ownership of agricultural land had no effect on interest in program
participation. Similarly, education, employment, income, and gender had no effect on
landowners’ interest in participation. Neither did having forest or farm management
plans or being enrolled in PUV programs. NRCS program participation may have been
influential as well, but less so than FSA use, so it was eliminated in the first OLS
14
regressions in order to avoid a high correlation between independent variables in the
logistical regressions.
Choice-Based-Conjoint Analysis.—The CBC analysis provides insight into how
landowners prioritize the program scenario attributes by assigning relative importance
scores to each, as seen in Table 7. A higher score represents a greater value placed on the
attribute by the respondents. Contract length, level of obligation and annual payments
were identified as the most important factors to landowners. Conversely, cost share and
technical assistance level both scored comparatively low.
Table 7. CBC Attributes with Importance Scores
Attribute
Contract Length
Obligation
Annual Payment
Cost Share
Assistance Level
Score
28.40%
25.90%
20.80%
12.40%
11.40%
This CBC analysis also enables us to examine how values within each attribute fared by
providing total zero-centered utility values for each (only levels within an attribute can be
compared), as seen in Figure 2. Again, higher scores represent a greater preference by
the survey respondent. Generally speaking, there is a linear relationship as we move
among the attributes’ values. For instance, respondents showed a steady decreasing
preference for greater contract lengths. Conversely, preference steadily increased with
greater assistance levels, cost share percentages and incentive payment amounts.
Obligation preference decreased slightly between no obligation and baseline obligations,
but dropped radically for full obligation.
15
Figure 2. Utility Scores for CBC Attributes
60.0
Utility Scores
30.0
53.1
46.7 44.5
23.8
20.5
6.9 11.8
27.3
40.3
2.2
0.0
-1.3
-30.0 -18.7
-60.0
-21.4
-21.9
-25.9
-48.6
-71.8
-90.0
-67.5
Financial Analysis and Capital Budgeting for Alternative Investments
We performed another analysis of the interest that landowners might have in Longleaf
pine using economic discounted cash flow analyses of potential investment returns for
Longleaf versus Loblolly pine or agriculture crops. Glenn (2011) performed a financial
and capital budgeting analysis of Longleaf pine management that we updated here for
another perspective on landowner requirements to establish Longleaf habitat. This
analysis examines managing for Red Cockaded Woodpecker habitat (LLP RCW)
compared to managing Longleaf pine for timber (LLP Timber) in comparison to Loblolly
pine for timber (Loblolly Timber) and agricultural crop production. The differences
between Longleaf pine and the other two land uses provide an estimate of the discounted
costs that a landowner would have to receive in order to shift from the generally more
profitable uses to Longleaf pine.
In addition to the work by Glenn based on 2011 prices, we estimated new investment
returns as well for more intensive Longleaf pine management alternatives and 2015
prices. We did not update the Glenn results for inflation, but that still should be less than
10% different than in 2015. Updating them without recalculating all the discounted cash
flows would have been more arbitrary than keeping them in their original form. The
management assumptions and results from Glenn were essentially a low intensity
16
approach to Longleaf pine management, without any extremely detailed or expensive
efforts to create perfect Longleaf ecosystem habitat for RCWs. The objective was mostly
to plant and grow Longleaf, either for short (45 year timber) or long (80 year
timber/RCW) rotations, with the presumption that the longer rotations would be most
conducive to RCW. The 2015 estimates assumed a much higher level of management
intensity, including understory restoration, foresters’ fees, timber inventory, and timber
marking. Thus this led to much higher costs, and less profits for Longleaf pine. The
opportunity costs of growing Longleaf pine versus Loblolly or crops also were higher.
Management Assumptions, 2011
We defined the opportunity cost of implementing a land management regime to support
Longleaf pine ecosystem credits as the transaction costs necessary to meet RCW habitat
requirements plus the foregone revenue from timber production or row crop agriculture.
Assumptions on prescribed burning and thinning frequencies, as seen in Table 8, were
based on literature review and discussions with Ron Myers from the North Carolina
Forest Service (NCFS) in 2011. Although LLP Timber could be managed to
accommodate lower amounts of RCW habitat and natural pine ecosystems, we assumed it
was managed for maximum timber and thus ineligible for credits.
Table 8. Land Management Scenarios Examined for Discounted Cash Flow Analysis
Management
Rotation
Prescribed Burning
Thinning Schedule
Type
Every 5th year in years 45 to 40/60 years, 80ft2/60ft2 basal
Longleaf RCW 80 years
80
area
Longleaf
40 years
28 years, 80ft2per acre basal area
Timber
Years 12 and 29
Loblolly Timber 25 yeas
NA
Year 7
Agriculture
Every
NA
NA
Crops
Year
Annual growth and volume for Longleaf were estimated using three Longleaf pine
growth and yield models: NATYIELD (1986), Farrar (1985), and Lohrey and Bailey
(1977). All three provided comparable yield curves, so we used NATYIELD because it
was based on North Carolina data. It does have coefficients and yields similar to those
specified by Lohrey and Bailey (1977). Land management practices and costs for
17
Longleaf pine such as site preparation, tree planting, stand stocking and maintenance
reflect prevailing practice rates and were taken from NCFS (2011). The first thinning
contained 25% pulpwood and 75% chip-and-saw and the second thinning and final
harvest contained 20% chip-and-saw, 50% sawtimber, and 30% large sawtimber.
Using a conventional Loblolly pine scenario, the thinning and harvest volumes and
management regime were based on prior research by Siry et al. (2001) and Cubbage et al.
(2012), which used the TAUYIELD growth and yield model. The planting rate was 600
trees per acre with a site index (SI) of approximately 80 feet at age 50. Thinning volume
was 475 ft3 per acre at age 17, comprised of 75% pulpwood and 25% chip-and-saw. The
final harvest volumes were 2,225 ft3 per acre at age 25, comprised of 23% chip-and-saw
wood, 67% small sawtimber, and 10% large sawtimber.
Agriculture yields were based on model farm budgets for the Coastal Plain of North
Carolina derived from NC State Cooperative Extension Service (2012, 2016) data for
corn and soybeans. The average yields were 110 bushels of corn per acre and 35 bushels
of soybeans per acre in both analyses, with corn selling for about $8 per bushel and beans
for $12 per bushel in 2011. These returns assumed that farmers could plant the same
field in corn or beans in perpetuity. This is of course not possible, but making a
simulation with various crop rotations and returns would be even more difficult to
understand and estimate.
The base 2011 crop analysis assumed constant excellent crop prices and good weather
patterns, with no droughts, floods, hurricanes, or other disturbances. Prices since then
also have dropped significantly. Thus for sensitivity analyses, we recalculated the returns
for 2015, based on the latest (still only 2012) crop budgets and the 2015 Coastal Plain
prices of $4.50 per bushel of corn and $8.50 per bushel of soybeans (USDA Agricultural
Marketing Service 2016).
Thus the 2011 crop budget comparisons provide an upper range of possible crop yields
and agriculture land profits. Mixed crop production systems and more typical wide
weather variations would be more apt to reduce these agricultural land value estimates
and opportunity costs than they would for timber and Longleaf pine in particular, which
are much better adapted for weather stress. In addition, while timber prices fluctuate, and
indeed were at a low level in 2011, crop prices have dropped in greater amounts since
18
2011, and have more price risk in free markets without government crop insurance
subsidies.
Capital Budgeting Methods
We used a standard capital budgeting approach to assess the present value (PV) and Land
Expectation Value (LEV) of each land management option to determine their economic
values (Klemperer 2003, Wagner 2012). LEV provides a measure of the value of a
management regime into perpetuity and allows one to compare multiple regimes with
different time frames (e.g., 25 years of active Loblolly management vs. 80 years at a
Longleaf stand). We used a 4% real discount rate, which is consistent with other forest
economic and investment analyses that have examined Longleaf pine financial returns
(Cubbage et al. 1989, Johnson 2011, Roise et al. 1991, Kessler et al. 1991, Row et al.
1981).
Calculated values were organized by Site Index (SI) at age 50 and pine straw value
within each land management scenario. Longleaf pine SI 70 is representative of sites in
the eastern coastal plain region and reflects realistic returns from good sites in North
Carolina. Pine straw was assumed to be harvested every three years from ages 16 to 40.
We used three pine straw revenue scenarios: (1) no harvest (zero value), (2) conservative
value ($75/acre per harvest) and (3) moderate value ($125/acre per harvest), representing
low to mid-range literature estimates and local pine straw sales in North Carolina
(Dickens et al. 2012).
For comparison, Bladen Lakes State Park 2011 pine straw sales ranged from $150 to
$300 per acre (Michael Chesnutt, personal communication), and are harvested almost
every year. Thus we were relatively conservative in our estimates of pine straw value,
but this should be more consistent with RCW habitat management in order to transition
the stands from mixed timber and straw production into RCW conservation uses.
The LEV of LLP RCW was compared to those of LLP Timber, Loblolly Timber and
agricultural crop production to determine the opportunity cost associated with adopting
this land management regime. From this, we calculated the annual payment to
landowners, in a theoretical 10-year contract, necessary to make them indifferent between
LLP RCW and the other scenarios. This payment is equivalent to common conservation
19
programs such as the Conservation Reserve Program (CRP). Rodriguez et al. (2012)
identified ten years as the contract length that landowners preferred for conservation
programs in counties in eastern North Carolina.
Financial Results, 2011
For the 2011 low intensity management analysis, the LEVs of LLP RCW and LLP
Timber were calculated using the different pine straw values mentioned above, an $8
annual property tax, and stumpage prices averaged from 4th Quarter 2011 Forest2Market
and Timber Mart-South reports that include $7.93/ton for pulpwood, $14.88/ton for chipand-saw, $25.41/ton sawtimber and $56.32/ton for large sawtimber (Forest2Market 2011,
Timber Mart-South 2011).
Table 9 compares the 2011 LEVs for Longleaf pine with a timber production focus and a
RCW conservation at the selected 4% discount rate. It also shows the difference in the
LEVs between the two scenarios, with a range of three pine straw production options.
This difference between the returns then provides a net cost to grow Longleaf pine for
RCW conservation. This total difference in the LEV amount was then converted to the
value of a 10 year annual annuity contract, which is typical for Farm Programs like the
Conservation Reserve Program (CRP).
Table 9. Longleaf Pine for RCW Habitat Opportunity Cost per Acre versus Longleaf Pine
for Timber Production Revenue, 2011, 4% Discount Rate
LLP
Pine Straw
LLP RCW
Opportunity 10-year Contract
Site Index
Timber
Value
LEV
Cost LEV
Annual Payment
LEV
None
-$498
-$140
$358
$42
60
Conservative -$218
$105
$323
$38
Moderate
-$54
$303
$357
$42
None
-$398
-$3
$395
$47
70
Conservative -$124
$243
$367
$44
Moderate
$40
$441
$401
$48
None
-$283
$143
$426
$51
80
Conservative -$19
$387
$406
$48
Moderate
$145
$585
$440
$52
20
This annual payment value would represent the opportunity costs and the annual
payments necessary to make landowners willing to grow Longleaf pine for RCW
conservation versus for timber production. For example, at Site Index 70 with a
conservative pine straw raking system, Longleaf for timber production would yield a
LEV of $243 per ac; Longleaf for RCW habitat would “lose” $124 per acre. Thus the
LEV opportunity cost would be $367 per acre, which would require an annual payment
of $44 per acre for 10 years at a 4% discount rate to make the LLP RCW habitat regime
as profitable as the LLP timber production regime.
One generic base level LEV was calculated for planted Loblolly pine timber, Site Index
80, 25 year rotation. Loblolly pine would not have a pine straw component. We used the
same prices as Longleaf pine for each product class, and a $242 establishment cost, $8
annual tax, $103 income at Year 17 from thinning and $1,305 income at year 25 from
harvest. Table 10 compares the LEVs of the LLP RCW and the base Loblolly Timber
scenarios, their opportunity costs and the required payments to landowners under a 10year contract.
Again, an example helps clarify the opportunity cost concept for Loblolly pine versus
Longleaf pine for RCW habitat. Loblolly pine had an LEV of $221 per acre;
conservative Longleaf, SI 70 had a LEV of -$124 per acre. Thus the net difference is
$325 per acre, which converts to a ten year annual payment of $71 per acre at the 4%
discount rate.
Table 10. Longleaf Pine RCW Opportunity Cost per Acre versus Loblolly Pine for
Timber Production with an LEV of $201 per Acre, 2011, 4% Discount Rate
Site Index
60
70
80
Pine Straw
Value
LLP RCW
LEV
Opportunity
Cost LEV
10-year Contract
Annual Payment
None
Conservative
Moderate
None
Conservative
Moderate
None
Conservative
Moderate
-$498
-$218
-$54
-$398
-$124
$40
-$283
-$19
$145
$699
$419
$255
$599
$325
$161
$484
$220
$56
$83
$50
$30
$71
$39
$19
$58
$26
$7
21
The best case agricultural scenarios assumed average North Carolina Coastal Plain crop
returns for corn and soybean farms each year into perpetuity, with annual profits of
$67.57 and $159.92 per acre, respectively (NCSU 2012). As noted, these assumptions
were optimistic and assumed that farmers would get average yields, maintain the current
high crop prices, and encounter no weather or climate issues. LEVs for corn and
soybeans were $1,757 and $4,158 respectively using 2011 prices, indicating opportunity
costs of between nearly $2,000 to more than $4,000 per acre to make LLP RCW returns
equal to agriculture returns when direct costs are included.
These best case agricultural returns are much higher than the highest Longleaf pine
versus Loblolly pine forestry opportunity cost of $699 per acre. However, this would be
a theoretical upper bound of the opportunity costs for crop farming given there are few
sites in North Carolina that grow corn or beans forever.
As one more recent comparison, net crop returns based on the much lower 2015 prices
would be approximately $42 per acre for corn and $26 per acre for soybeans. Capitalized
in perpetuity at the 4% discount rate, these would be values of $1050 per acre for corn
and $650 per acre for soybeans. Thus these opportunity costs between a $-124 for
Longleaf pine and corn would be $1174 per acre; for soybeans it would be $774. These
are obviously less daunting than in 2011.
Poorer agriculture land, or even quite common variations in weather, would reduce these
theoretical annual crop returns greatly, and might make at least even marginal
agricultural lands in North Carolina more possible to convert to forestry or to Longleaf
pine using incentive payments. A more detailed analysis of dozens of different
agriculture crop rotation, weather, and price fluctuations would be necessary to examine
these prospects.
Marginal agricultural lands may be more attractive for conversion to RCW habitat. An
economic analysis of marginal farmland in North Carolina found that between 2007 and
2012 both corn and soybean crops generated negative returns, averaging annual losses of
-$174 per acre for corn and -$41 per acre for soybeans (Cubbage et al., 2012). If these
losses were repeated annually, as the positive returns were repeated in the simplified
agricultural analysis, they would lead to LEVs of -$4,524 to -$1,066 per acre. These
findings would be even worse in 2015. Thus when compared with annual risks and
potential losses from agricultural crops, forestry investments can produce suitable
22
positive investment returns on poor agricultural sites that may not be as fertile or that are
more susceptible to drought and flooding. In fact, for poor agricultural lands and current
2015 prices, Loblolly pine and even Longleaf pine would be more profitable in the long
run than corn or beans, even without cost share payments.
Sensitivity Analysis: Changes in Stumpage Prices and Cost Share Payments, 2011
A sensitivity analysis was conducted to examine the effect of timber prices on the
opportunity costs for Longleaf RCW habitat scenario. The preceding analyses are based
on timber prices from fourth quarter of 2011, which were at modern historical low levels
for the southern U.S. Thus we increased stumpage prices by a factor of 1.5; this
increased the conventional Loblolly LEV to $635 per acre (compared to $201). Longleaf
timber prices also were increased, but one would need to wait longer to realize these
returns than for the shorter rotation Loblolly pine.
Table 11 presents the 2011 Longleaf pine LEVs, opportunity costs, and payments.
Although the value of each Longleaf pine investment improved with higher timber prices,
the difference between it and the conventional Loblolly income, and thus the opportunity
cost, grew because timber became a more important part of total revenues than pine straw,
and the Loblolly timber revenues occurred sooner.
Again, for the Conservative SI 70 example, Longleaf RCW LEV was $11 per acre; the
Loblolly base LEV was $635 per acre; the opportunity cost was $624 per acre; and the
ten year annual payment required was $74 per acre. This pattern could be expected to
emerge for LLP Timber as well given that proportional timber revenues would outpace
fixed pine straw revenues. Pine straw prices could increase as well, although we did not
analyze this because they were at historic high prices, not low ones like timber.
23
Table 11. Longleaf Pine RCW Opportunity Cost per Acre versus Loblolly Pine for
Timber Production, with an LEV of $635 per Acre, 4% Discount Rate, Timber
Prices of 1.5 Times more than in 2011
LL RCW
LEV
Pine Straw
10-year Contract
Site Index
Habitat
Opportunity
Value
Annual Payment
LEV
Cost
-$382
$1,017
$121
None
60
-$129
$764
$91
Conservative
$36
$599
$71
Moderate
-$233
$868
$103
None
70
$11
$624
$74
Conservative
$176
$459
$54
Moderate
-$61
$696
$83
None
80
$170
$465
$55
Conservative
$334
$301
$36
Moderate
North Carolina provides state and federal cost share programs that offer financial
assistance for planting Longleaf pine. These programs can have a tremendous impact on
financial returns, especially when compared to Loblolly pine since its cost share rate is
lower. An example of such a program is USDA’s NRCS Environmental Quality
Incentives Program (EQIP) that has cost shared up to 100% of establishment and
maintenance activities for Longleaf pine (USDA NRCS 2012a, 2012b). Assuming a
minimum payment from EQIP, the opportunity cost between Longleaf and Loblolly pine
was greatly reduced and in many cases disappeared.
Table 12 presents opportunity cost and payments when a cost share of $306 per acre, to
cover establishment costs, is included. The same SI 70 Longleaf conservative pine straw
case would then have a positive LEV with cost share payments of $195 per acre, versus
the Loblolly base case of $201 per acre. Thus the RCW Longleaf LEV opportunity cost
would be only $6 per acre, or essentially require no annual conservation payment (e.g.,
$1 per year for 10 years).
In fact, landowners would receive a conservation payment of $50 per acre or so for 10
years in the EQIP program, generating a LEV of $456 per acre at 4% discount rate. So
Longleaf for RCW habitat actually would become a much preferred alternative to
Loblolly pine—$450 per acre better in fact with the EQIP cost share payment and annual
payments. This helps explain why landowners have been eager to enroll in the Longleaf
24
programs for planting Longleaf pine, and the EQIP program has been fully enrolled of
even oversubscribed when it has been available.
Table 12. Longleaf Pine RCW Opportunity Cost per Acre with $306 per acre Cost
Share Payment for Planting versus Loblolly Pine for Timber Production with an
LEV of $201 per Acre, 2011, 4% Discount Rate
LL RCW
LEV
Pine Straw
10-year Contract
Site Index
Habitat
Opportunity
Value
Annual Payment
LEV
Cost
-$178
$379
$45
None
60
$102
$99
$12
Conservative
$266
NA
NA
Moderate
-$79
$280
$33
None
70
$195
$6
$1
Conservative
$359
NA
NA
Moderate
$36
$165
$20
None
80
$301
NA
NA
Conservative
$465
NA
NA
Moderate
NA- In several cases the Longleaf pine LEV with establishment costs being paid now
exceed Loblolly pine’s LEV ($201) and opportunity cost is not applicable.
Management Costs and Present Values for RCW Habitat, 2015
Managing Longleaf pine stands specifically for RCW habitat require specific practices
and their associated costs vary depending on site conditions. This analysis of a higher
intensity of management with 2015 costs compared two more scenarios: (1) artificial
replanting on agricultural lands—such as shown above for the 2011 input costs and
prices—and (2) conversion of existing mature stands.
Practices Required for Longleaf Pine Conversion or Existing Stand Management.—
Our high intensity scenarios for converting agriculture lands into Longleaf pine habitat
for RCW or for managing mature existing stands that have a Longleaf pine component
for RCW were significantly more involved. For conversion from agriculture, there were
seven distinct management steps, including:

Scalping, burning and applying broad-spectrum herbicides to eliminate Bermuda
grass, fescue, or whatever common field grass is growing on the site;
25

Machine or hand planting (associated costs include seedlings, labor and the
periodic application of herbicide while planting);

Prescribed burns, herbicide treatments or both until trees grow out of their grass
stage and obtain height (it may be necessary to do two prescribed burns and one
application of herbicides after planting, but before age five);

Introducing fire on a rotational basis when trees begin to average 2.5 to three feet
in height and over 1.5 inches in diameter (one fire per stand every three years
until year 75);

Conducting understory restoration (old agricultural fields are usually void of
original native understory plants);

Conducting two to three thinnings, timber marking and inventorying every 10 to
15 years; and

Depending on landowner characteristics and preferences,
o Hiring a forester (for larger landowners) or retaining a consultant, based
on the amount of work required and the skill of the forester;
o Hiring a third party contractor to track, monitor and inventory RCWs to
meet the requirements of US Fish and Wildlife Services; and/or
o Maintaining such things as roads and gates, property taxes, and boundary
marking.
In contrast to planting bare fields, converting mature stands with the target age class
structure (assumed here to be 75 years old with 45 to 75 square feet of basal area per
acre), or potential for it, requires less intensive management activities. On the other
hand, replanting cutover forest sites requires more management activities to clear a site
and prepare it for planting.
Appendix 1 provides a list of the activities required to convert agriculture land for RCW
habitat (assumed to occur in year 50) and to maintain mature stands at a basal area of 60
sq. ft. /acre; their associated descriptions for low and high intensity management regimes;
and their associated cost estimates for each of the practices required, at a high and low
end of the range for those costs.
26
Discounted Cash Flow Value of Costs.—Table 13 provides a breakdown of both the
present value of costs to convert agricultural land and the LEV to manage mature forests
into perpetuity. It also provides the LEV for annual fees that occur in both management
scenarios.
Table 13. PV and LEV for Costs to Convert and/or Manage Land for RCW Habitat, 4% Discount
Rate
PV Costs/acre, 2015
PV Costs/acre,
(High Intensity)
Activity
2011
(Low Intensity) Low Price
High Price
Converting Land from Agriculture
Scalping
$40
$40
$60
Herbicide Site Preparation
$80
$80
$120
Pre-plant Prescribed Fire
$20
$20
$30
Longleaf Seedlings
$80
$80
$200
Planting Labor
$40
$40
$60
Herbicide Treatments
$50
$70
None
Early Stand Treatments
$34
$99
$144
Prescribed burns
$14
$139
$209
Understory Restoration
$2,000
$2,500
None
Timber Marking
$14
$14
$20
Timber Inventory
None
$97
$97
Managing Mature Forests
Prescribed Burns
$92
$160
$240
Herbicide Treatments
None
$104
$156
Timber Marking
$29
$29
$36
Timber Inventory
None
$75
$120
Annual Costs
Forester Fee
$100
$100
$175
Land Maintenance Fee
$125
$125
$175
RCW Monitoring
$100
$100
$150
$548
$447
PV Cost to Convert Agricultural Land*
$2,884
$694
$3,860
$1,053
LEV Cost to Manage Mature Forests
LEV Cost to Convert Agricultural Land
$665
$3,036
$4,088
and Manage it into Perpetuity**
LEV Cost to Replant a Cutover Site with
$800
$3,121
$4,196
Longleaf Pine & Manage into Perpetuity**
*Excludes RCW Monitoring Cost
**To calculate this, the costs for managing mature stands were discounted 50 years and then added
to the conversion and uniform costs
27
Table 13 values were calculated using the same 4% real discount rate to determine the
total value of converting, then managing, agricultural lands into RCW habitat into
perpetuity. The conversion cost is added to the discounted cost of managing mature
forests in order to calculate the total present value of the costs for our analysis for costs in
2015. Also, for comparison, the costs of management discussed in the previous section
from the low intensity approach modeled in 2011 are included.
Note that the costs for intensive management that were assumed for the 2015 analysis
were far greater than the low intensity management scenarios analyzed in 2011. The
costs for more frequent prescribed burns, earlier stand treatments, more herbicide
treatments, and especially the $2000 to $2500 per acre understory restoration costs in
2015 scenarios were extremely expensive. Note that if one did not spend the extra funds
to plant and restore the understory, the costs in 2015 would be less, at $884 per acre at the
low input cost levels and $1364 per acre for the high cost levels. However, all of these
costs are still much more than just planting Loblolly pine, which is probably less than
$400 per acre at most for the initial costs, and requires less burning and no understory
establishment costs to establish and maintain a stand.
Using the basic low intensity/low costs scenarios we employed for the 2011 analysis, the
present value of the costs for converting agricultural land to Longleaf pine stands was
$548 per acre at the 4% discount rate. The costs to manage the mature forests then was
$447 per acre, discounted to the first year of that mature forest analysis. Thus the
combined cost of these scenarios—converting it Longleaf pine, then managing it from
that point on (50 years) into perpetuity—would be $665 per acre. Note that the $665 per
acre is less than the sum of the above two components, because it is the discounted sum
of $548 per acre, already to year 0, plus the $447 per acre discounted from year 50 back
to year 0 (e.g. $548 +$447/(1.04)50).
Required Incentive Payments.—The capital budgeting analysis for 2011 discussed
above indicated that the LEV for managing forests for Longleaf pine timber, including
both management cost and timber revenues, compared to Loblolly pine timber ranged
from $56 to $699 per acre. For agriculture, the 2011 differences between Longleaf pine
and optimistic agriculture returns were $1,757 to $4,158 per acre. These results led us to
conclude then that landowners were very unlikely to convert average quality agriculture
land to forest land. The 2015 data indicate that crop production profits decreased
substantially, reducing the differences between agricultural and Longleaf pine returns for
the low intensity scenario to about $900 to $1200 per acre.
28
Based on our input cost data for individual practices, total costs for management of
existing mature stands ranged from $447 per acre for low intensity management in 2011
to $1,053 per acre for high cost, high intensity management. Converting agricultural land
was more expensive and ranged from $548 per acre in 2011 to $3,860 per acre in 2015.
The LEV for replanting cutover forest sites was slightly higher, ranging from $800 in
2011 to $4,196 per acre in 2015.
The net discounted benefits of the forest rotations in 2011 were $156 per acre (Glenn
2011). Subtracting these returns from the total costs in Table 13 provides an estimate of
the LEV of costs plus returns for restoring or establishing Longleaf pine habitat for the
2011 and 2015 scenarios. Note that the greater costs shown for 2015 are mostly caused
not by price differences, but rather by a more expensive set of practices, including shrub
establishment and more frequent burning and herbicide applications.
Table 14 then summarizes the calculations we made and the annual incentive payments
that would be required to pay the opportunity cost between the current land use and
converting those lands to Longleaf pine under our low intensity and high intensity
management regimes.
So, the bottom line of Table 14 is that high costs for Longleaf establishment will require
greater incentive payments to break even. The low intensity management regime with
annual cost share payments and a 50% establishment cost rate, which has fewer
management inputs and costs, might require incentive payments of about $27 to $79 per
acre per year for 10 years to establish and grow Longleaf pine. In addition, converting
mature forests also might possibly have incentive payments that are reasonable, ranging
from $27 to $98 per acre per year for 10 years plus 50% of establishment costs.
The high intensity management regimes, even with payment of 50% of establishment
costs, would require much greater annual incentive payments, ranging from $213 to $498
per acre per year. Establishing the understory is by far the greatest expense in these costs,
at the initial costs of $2000 to $2500 per acre. Not performing understory establishment,
however, would lop off $250 to $300 per acre per year of the required payments for low
intensity and high intensity management, respectively. These annual payment costs
would also then be less than $100 per acre per year in all but the high intensity, high cost
regime.
29
Table 14. Annual Incentive Payments Required to Pay the Opportunity Cost Between
the Current Land Use and Converting those Lands to Longleaf Pine
Management Scenario
Low
Hi
Hi
Intensity
Intensity/
Intensity/
Low Price
High Price
- - - - - $/acre - - - - LEV of Costs/Scenario
Mature Forest
447
694
1053
Ag Land Conversion
665
3036
4088
Cutover Forest Replanting
800
3121
4196
LEV of Costs+Benefit of
$156
Mature Forest
Ag Land Conversion
Cutover Forest Replanting
291
509
644
538
2880
2965
Required Incentive Payment for 10 Years at 4%
Discount Rate
Mature Forest
36
66
Ag Land Conversion
63
355
Cutover Forest Replanting
79
366
Cost Share Payments
Mature Forest Burn +
Herbicide Base Costs
Cost Share Rate at 50% of
Initial Base Cost
Establishment Costs in Year 0
Cost Share Rate at 50% of
Establishment Costs
897
3932
4040
111
485
498
70
70
105
35
35
53
300
150
2300
1150
2800
1400
Required Incentive Payment for 10 Years at 4% Discount Rate + 50%
Cost Share
Mature Forest
27
58
98
Ag Land Conversion
44
213
312
Cutover Forest Replanting
79
366
498
Annual Payment Multiplier at 4% Times
Cost =
0.123290944
30
Increasing Existing Longleaf Pine Habitat
As noted before, prior to European settlement, Longleaf pine occupied approximately 92
million acres (37 million hectares) of the Southeast U.S., of which 74 million acres were
Longleaf dominant and 18 million acres were mixed-species stands. Such activities as
agriculture, open range grazing by livestock, logging, production of turpentine and
elimination of naturally occurring wildfires have reduced this amount by approximately
97% over the last 400 years (Frost 1993). The current Forest Inventory and Analysis
(FIA) data can be accessed to estimate the actual Longleaf pine areas now, using the
EVALIDator forest inventory data set building tool (USDA Forest Service 2015).
We used EVALIDator to estimate the amount of Longleaf pine habitat within the
counties covered by the landowner survey. There are approximately 191,500 acres of
Longleaf pine (sampling error of 16.05%). Table 15 provides a summary of old growth
forest that could be suitable for RCW habitat and converted as mature forests with the
treatments described above. This includes both Longleaf pine types and for Loblolly pine
types for age classes between 41 and 80 years old. The Longleaf estimates do have
considerable variability, but the standards errors are approximately 20% or less.
Table 15. Mature Longleaf and Loblolly Forest Types in the 38 Study Counties, 2015
Forest
Type/Age
41-50 Years
51-60 Years
61-70 Years
71-80 Years
Total
- - - - - - - Acres - - - - - Longleaf
35,481
64,685
21,427
52,713
174,306
Types
Loblolly
247,366
229,431
129,838
109,114
715,749
Types
Total
282,847
294,116
151,265
161,827
890,055
Source: EVALIDator 2016. Longleaf type data include Longleaf pine, Slash pine,
Longleaf pine/oak, and Pond pine. Loblolly type data include Loblolly pine and Loblolly
pine/hardwood.
These data indicate that there are about 174,000 acres of mature Longleaf forest types
within the 38 landowner survey counties that could be improved for red cockaded
woodpecker (RCW) habitat. Similarly, there are about 716,000 acres of mature Loblolly
pine forest types. Most scientists believe that old Loblolly pine also could serve as
adequate, if not ideal, habitat for RCWs if that were the primary purpose of habitat
31
restoration. This would provide a much greater total area for RCW opportunities.
However, if one were seeking to establish the full range of ecosystem benefits provided
by Longleaf, there are fewer mature forest to work with.
One could also estimate the costs of these different treatments times their number of acres
times the cost of conversion to estimate a supply curve for converting mature stands. In
fact, we also could do the same for estimating the total acres of Loblolly pine forests in
the region, total Longleaf pine forests, and total agriculture land. The study proposal
indicated that we would do this, but in the end the result was astronomical, so we have
eschewed reporting these details. For reference, the 38 counties had a total of
(EVALIDator 2015, USDA NASS 2015):
Forest land
Longleaf pine forest land
Loblolly pine forest land
Farm Land
Total Farm and Forest Land
4,242,055 acres
191,523 acres
2,950,424 acres
3,588,032 acres
7,830,087 acres
The total estimated cost of converting all the mature lands and replanting all the longleaf
and loblolly pine lands and all the agriculture land literally totaled more than $30 billion,
which is of course far beyond any reasonable cost that could be subsidized in 38 counties
by the Farm Bill or other private programs. So maybe the bottom line on the land
area/supply is that there is plenty of land in the counties that could be restored or
converted to Longleaf ecosystems if landowners were interested, land management
hurdles could be overcome, and adequate inventive payments could be made.
Discussion and Conclusions
Environmental credit markets are voluntary programs that engage private landowners
through economic incentives in order to promote habitat conservation. Their success
largely depends on the ability of policy makers, landowners, extension agents, or perhaps
credit brokers to understand and accommodate the participants’ needs. This component
of our CIG grant provides a multifaceted analysis of the supply side of a potential
ecosystem based credit market to promote Longleaf pine habitat in Southeast U.S.
In brief, our results indicate that previous experience in a cost-share benefits programs
and specific landownership traits may lead to greater interest in a conservation credit
32
program to promote Longleaf pine. Both the logistic regression and choice based
conjoint (CBC) statistical analyses revealed that landowners are very concerned about
program requirements such as contract length and legal obligation in a conservation
contact. This makes intuitive sense because landowners seldom want to tie up their land
with permanent easements to restrict their opportunity to sell part or all of their land for a
profit, or bequeath it to their heirs. Much of the sampled population was at or near
retirement and may be concerned with inheritance in particular.
The CBC analysis also revealed the relative role that key factors play in encouraging
participation. Short term contract agreements were favored, with 5 and 10 year contracts
each being the most highly rated of all factors identified, and 30 year agreements being
the least favored. No obligation and the baseline obligation were acceptable; increasing
obligations were not. Annual payments were somewhat less important than contract
agreement or level of obligation, and higher payments were more desirable as expected.
The initial cost share rate and type of assistance were the least important factors affecting
willingness to participate in Longleaf conservation programs. More technical assistance
and higher cost share rates were favored, but had a much smaller CBC attribute score
payments, obligations, or contract length.
The financial and capital budgeting analysis expanded on this by providing insight into
the opportunity cost of managing for conservation as compared to timber or agriculture
production. For Longleaf pine versus Loblolly pine, the incentive payment required for
landowners to plant Longleaf in the 2011 analysis at a 4% discount rate, was between
$7/acre and $83/acre per year, not including establishment costs. If establishment costs
of $306 were paid, Longleaf returns would exceed Loblolly returns for the higher site
indexes and pine straw raking scenarios.
Costs were much more expensive for the more intensive 2015 Longleaf economic
analyses, being several times greater than the low intensity 2011 costs. The 2015
analysis also examined costs to convert mature pine forests to high quality Longleaf or
even Loblolly habitat for open grown pine conditions that would favor RCW habitat.
The 2015 intensive management costs ranged from $694 to $1053 for conversion of
mature forests to open grown systems, up to $4196 for planting cutover forest sites. The
required incentive payment for these management regimes would be $66 to $496 per acre
per year, which are prohibitive at the high end. However, if the initial year costs for
mature forest conversion of Longleaf pine tree planting received a 50% cost share rate,
required annual payment costs could decrease somewhat. And last, if the very expensive
33
shrub establishment practice were dropped, even the intensive Longleaf annual payment
rates for mature and planted stands could decrease to less than $100 per acre per year,
which is at least in the Farm Bill Program ballpark.
Longleaf might offer other benefits not directly measured in this study. Voluntary
incentive programs provide a potentially effective means of encouraging environmental
conservation among private, non-industrial landowners. Compared to Loblolly pine or
crops, it provides a different income stream and markets for risk reduction purposes; it
may prosper more in droughts or even floods; and it provides broad ecosystem benefits.
It also does provide pine straw, and can produce higher returns than our conservative
estimates we used here. It also can produce superior timber and poles that fetch higher
prices than those we used.
Our specific results also can be complemented by knowledge of existing landowner
behavior. Landowners have been more than willing to enroll in Farm Bill and state
Longleaf pine planting programs, and our findings help suggest preferred contract,
payment, and assistance factors. While it is anecdotal, it appears that a recent increase in
tree planting in the South also has a much larger Longleaf pine component than in the
past.
The findings also provide an idea that the low intensity establishment and management
costs such as we found in 2011 could be used first to get Longleaf plantations in the
ground. The higher 2015 high intensity approaches are more expensive, but could be
acceptable with high enough cost share payments. Shrub establishment is the biggest
cost by far in our 2015 analyses. So perhaps one could use low intensity approaches such
as analyzed in 2011, and get the trees established first. Landowners could even rake pine
straw in the initial years in order to generate and income and attract them to Longleaf,
then convert to conservation uses later in the stand life. In 30 or 40 years, one could
come back and work on shrub establishment as part reforestation of more mature stands.
This could break up the costs into manageable components, for landowners and for
government programs.
We will continue this line of innovation grant analyses, and work with government and
nongovernment agencies and landowners to evaluate and deliver their conservation
programs for Longleaf and other open grown pine systems. We would welcome
comments and suggestions regarding our findings and conclusions as well.
34
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Appendix 1. Management Activity Descriptions and Associated Costs for Low and High Intensity Management Regimes, 2015
Low Intensity Activity
Description
Activity
Scalping
Herbicide Site Preparation
Pre-plant Prescribed Fire
Longleaf Seedlings
Planting Labor
Herbicide Treatments
Early Stand Treatments
Prescribed burns
Understory Restoration1
Timber Marking
Timber Inventory
Site Preparation Burn
Drum Chop
Herbicide Site Preparation
Longleaf Seedlings
Planting Labor
Early Stand Treatments
Prescribed burns
Herbicide Treatments
Understory Restoration1
Timber Marking (three times)
Timber Inventory (every 13
years)
High Intensity Activity Description
Converting Land from Agriculture
Initial one time cost at $40/acre
Initial one time cost, from $40 to $60/acre
Initial one time cost at $80/acre
Initial one time cost, from $80 to $120/acre
Initial one time cost at $20/acre
Initial one time cost, from $20 to $30/acre
Initial one time cost at $80/acre
Initial one time cost, from $80 to $200/acre
Initial one time cost at $40/acre
Initial one time cost, from $40 to $60/acre
None
Initial one time cost, from $50 to $70/acre
Herbicide treatment in year 2 (from $70 to $100/acre),
Burns in years 3 and 5 at $20/acre
burns in years 3 and 5 (from $20 to $30/acre)
Every 5 years, starting in year 5 and Every 3 years, starting in year 5 and ending in year 74, from
ending in year 75, at $20/acre
$20 to $30/acre
None
Initial one time cost (from $2,000 to $2,500/acre)
Once in year 40 (from $50 to $75/acre) and again in year
Once in year 40 and 60 at $40/acre
60 (from $40 to $50/acre)
None
Once every 13 years, starting in year 13 at $70/acre
Converting Land from Timber
Initial one time cost at $40/acre
Initial one time cost, from $40 to $55/acre
Initial one time cost at $100/acre
Initial one time cost, from $100 to $130/acre
Initial one time cost at $80/acre
Initial one time cost, from $80 to $120/acre
Initial one time cost at $80/acre
Initial one time cost, from $80 to $200/acre
Initial one time cost at $40/acre
Initial one time cost, from $40 to $60/acre
Herbicide treatment in year 2 (from $70 to $100/acre),
Burns in years 3 and 5 at $20/acre
burns in years 3 and 5 (from $20 to $30/acre)
Every 5 years, starting in year 5 and Every 3 years, starting in year 5 and ending in year 74, from
ending in year 75, at $20/acre
$20 to $30/acre
Every 10 years up to year 70 at $50
Every 10 years up to year 70, from $50 to $75/acre
None
Initial one time cost (from $2,000 to $2,500/acre)
Once in year 40 (from $50 to $75/acre) and again in year
Once in year 40 and 60 at $40/acre
60 (from $40 to $50/acre)
None
Once every 13 years, starting in year 13 at $70/acre
Managing Mature Forest
Every 5 years at $20/acre
Every 3 years, from $20 to $30/acre
None
Every 10 years, from $50 to $75/acre
Every 22 years at $40/acre
Every 22 years, from $40 to $50/acre
None
Every 13 years, from $50 to $80/acre
Annual Costs
Forester Fee
Annual fee at $4/acre
Annual fee, from $4 to $7/acre
Land Maintenance Fee
Annual fee at $5/acre
Annual fee, from $5 to $7/acre
RCW Monitoring
Annual fee at $4/acre
Annual fee starting in year 50, from $4 to $6/acre
1 - This practice may not be necessary in all fields.
Activity and cost data provided by the North Carolina Forest Service. Costs are estimates based on certain land characteristics and
are likely to vary from site to site
Prescribed Burns
Herbicide Treatments
Timber Marking
Timber Inventory
39